ADVERTISEMENT
ADVERTISEMENT

2 years after buying my first car, I'm getting offers in the mail to refinance my auto loan. Here's how I'll figure out if any are worth taking.

I've been getting offers in the mail to refinance my auto loan , and for the first time I'm considering it.

woman driving car freedom

I bought my first car in 2017 after driving the one I was given in high school for about ten years.

I bought an affordable and economic hatchback that cost about $12,000 plus taxes and fees. I financed it in full with no down payment, and the total loan came to $14,428.72. My interest rate was 7.42%, and my monthly payment is now $251 a month, but I pay $277 so that I can pay off my loan faster than the 72 months I financed it for.

Because I automate all of my monthly payments, I have put this bill out of my mind entirely and sleep soundly knowing I am making all of my payments on time. I don't even think about it except when I get the monthly email notifying me that my payment has been made. But lately, this loan has been on my mind. Why? I've been getting offers in the mail to refinance my auto loan with interest rates as low at 3.99%. So I took a look at what I would save and whether it would be worth it.

ADVERTISEMENT

Here's what my car loan currently looks like:

  • Balance : $10,433
  • Interest rate : 7.42%
  • Remaining term, in months : 51
  • Total Interest : $1,663
  • Estimated total cost : $12,096
  • Monthly payment : $251 (I pay $277)

The principal balance remaining on my loan is now $10,433. According to my CreditKarma account, I could save significantly if I choose to refinance it. But I'll only do it if I save in the long run. I used CreditKarma to take a look through three offers I got to refinance my auto loan:

Let's look at the first offer.

ADVERTISEMENT
  • Balance : $10,433
  • Interest rate : 7.79% (as low as)
  • Remaining term, in months : 60
  • Total interest : $2,190
  • Estimated total cost : $12,623
  • Monthly payment : $211

The first lender, who we'll call Lender A, is offering me a monthly payment that is $40 lower than what my monthly payment is right now.

But after a closer look, you'll see that interest rate is actually higher. The monthly savings is only due to a lower principal, but I'd actually be paying roughly $600 more for this loan in its lifetime. This scenario would only be worth it if my cash flow was stretched so thin that I had no other option but to refinance and free up discretionary income. Even so, the savings is only $40 a month, which to me is just not worth it. I am going to say thanks but no thanks on this one.

Want to see what kind of offers you'd get? LendingClub can help you find lenders to refinance your auto loan and save money

ADVERTISEMENT

The second offer looks like this:

  • Balance : $10,433
  • Interest rate : 4.64% (as low as)
  • Remaining term, in months : 54
  • Total interest : $1,150
  • Estimated total cost : $11,583
  • Monthly payment : $214

I'm also not going to consider the second offer. Why? The savings is not as great as other offers. Sure, the monthly payment would be less, but for all the hassle I'm not sure it is worth it for $513 of savings in four and a half years.

I would consider an offer like this last one:

ADVERTISEMENT
  • Balance : $10,433
  • Interest rate : 3.74% (as low as)
  • Remaining term, in months : 60
  • Total interest : $1,022
  • Estimated total cost : $11,455
  • Monthly payment : $191

The drop from a 7.42% interest rate to 3.74% is significant enough to save me $60 on my monthly payment and about $641 in total. This total savings is about $128.20 per year. While there are other ways to make more money faster, I would still consider this loan because I would save money in both the short term and the long run.

Last, I happen to know that the last time I checked, the lowest offer I saw was 2.99%. Since then, I made a major purchase using 0% introductory interest, and my credit utilization ratio is now higher. So, if I want to go forward with auto refinancing, I will first pay off those credit card balances and ensure the credit check is relying on the latest information.

Since a loan increases the amount of credit available to you, auto refinancing can be a great way to decrease your credit utilization ratio if you need to lower the ratio for a major purchase on the horizon. But auto refinancing is not the most important thing on my to-do list right now, and I am not sure I will do it.

If I do, I will triple check to ensure there are no fees that could wipe away my $641 savings, and I will enjoy the extra wiggle room by putting more money in my savings account.

ADVERTISEMENT

More coverage

See Also:

ADVERTISEMENT

JOIN OUR PULSE COMMUNITY!

Unblock notifications in browser settings.
ADVERTISEMENT

Eyewitness? Submit your stories now via social or:

Email: eyewitness@pulse.ng

Recommended articles

Here's everything to know about being a virgin on your wedding night

Here's everything to know about being a virgin on your wedding night

7 do's and don’ts of the Holy month of Ramadan

7 do's and don’ts of the Holy month of Ramadan

Top 5 sweetest celebrity mother-child relationships that stand out for us

Top 5 sweetest celebrity mother-child relationships that stand out for us

International Women's Day: 5 Nigerian female celebrities championing women’s rights

International Women's Day: 5 Nigerian female celebrities championing women’s rights

Top 5 female directors in Nollywood

Top 5 female directors in Nollywood

6 things that will break a Muslim's fast during Ramadan

6 things that will break a Muslim's fast during Ramadan

5 benefits of fasting during Ramadan

5 benefits of fasting during Ramadan

5 reasons Easter was more fun when we were children

5 reasons Easter was more fun when we were children

Dos and don’ts of supporting Muslims during Ramadan

Dos and don’ts of supporting Muslims during Ramadan

ADVERTISEMENT
ADVERTISEMENT